Tax implications of various Bank Deposit products

The tax season is on. You must have invested in various bank deposits. What is the tax implicaitons of various bank deposit products ?

In Banks you will normally have Savings Bank Account, Current Account, Sweep Account, Recurring Account, Fixed Deposits, Cumulative Deposits. Let us know the tax implications one by one.

Savings Bank Account: Banks do not deduct any tax on the interest earned by you on your Savings Bank account balance. But the interest earned is Taxable. Its your responsibility to add it to your total income and pay tax accordingly. But the good thing is that if you are individual or HUF you can get tax exemption of Rs.10000 under Section 80 TTA on your interest earned on SB deposits.



Current Account: Banks do not pay any interest on Current Account Balance. Some Banks do give based on the balances kept. But as current accounts are maintained by businessmen the income will be added as income from other sources and applicable tax will be paid on it. Banks do not deduct Tax on current account interest.

Sweep Account: The sweep account is combination of Savings Bank and Fixed Deposit Account. The amount above the limit fixed by the bank automatically coverts to Fixed Deposit. The Bank will not deduct tax on interest earned on balance kept in Savings Bank account but the tax at 10% will be deducted on the interest paid or accrued on Fixed Deposit balance if the same exceeds Rs.10000 per financial year. It will be your responsibility to pay tax on your Savings Bank interest at your applicable rate. If you come in above 10% tax bracket then you have to pay applicable additional tax as the bank deducts only 10%.

Fixed/Cumulative Deposit: Here the bank deducts tax at 10% on the interest paid to you if the same crosses the limit of Rs.10000 per financial year. Tax is deducted on full interest if limit is crossed. It will be your responsibility to pay additional tax if you come in higher tax bracket.

Recurring Deposit: Here also the bank do not deduct any tax on interest earned. But the interest earned is taxable. Hence its your responsibility to add the interest income to your total income and pay tax accordingly. But the interest can be taken on accrual basis every year or can be taken in the year of maturity as per your benefit.

Some important points:

* You can get rebate of Rs.10000 on interest earned on SB account if you are individual or HUF under Section 80 TTA of income tax act.

* Bank normally deducts tax if the interst paid on your deposit exceeds Rs.10000 per financial year.

* Once the limit of Rs.10000 is crossed tax is deducted on full interest.

* Bank deducts tax at 10% only and if you come in higher tax bracket its your responsibility to pay additional tax.

* Even if the bank do not deduct tax on SB, RD accounts the interest earned is taxable.

* If you do not want your bank to deduct taxes on the interest earned then you have to submit Form 15G(if you are below 60 years of age) and 15H(if you are aged 60 and above). But submit it at the start of financial year and get the acknowledgement.

* Once the bank deducts and remits the tax from your interest you will not get refund from the bank. You will have to get the refund by filing your IT return.